E-Commerce Tightening Industrial Real Estate

Migration to online shopping drastically affecting vacancies and rents, but relief on the way.
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The growth of e-commerce has driven the availability of industrial real estate to "unusual lows as demand increases for facilities to handle uses such as same-day delivery fulfillment and reverse logistics," according to a recent report from CBRE Group Inc.

Industrial real estate availability in the U.S. declined to 9.2 percent in the first quarter – the lowest level since 2001 and the 24th consecutive quarter of declining availability.

Meanwhile, industrial rental rates continued to climb, rising 5.3 percent last year to $5.74 per square foot. Rates are expected to "continue their rise this year before slowing next year."

Another factor boosting demand, the report says, is the strong U.S. dollar. It "augurs more imports, which stay in the distribution system longer than exports and thus require more space."

New construction of industrial space, however, should limit the decreasing availability and increasing cost over the next two years. New construction increased by nearly 14 percent last year to 150.5 million square feet, and CBRE "expects construction to continue to ramp up over the next two years, though it will remain under the 10-year high of 213.5 million square feet delivered in 2006."

“The market is very strong right now, but we think we’ll start to see a pause as more supply comes online this year and next,” said Jeff Havsy, CBRE’s Americas chief economist and managing director of CBRE Econometric Advisors. “We also expect that demand might ease a little, because it’s been so strong for so long. You’ll probably see a slight pickup in vacancy this year, but nothing dramatic.”

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